Let’s start by addressing the elephant in the room.
For many people, the word annuity comes with baggage.
You may have heard that annuities are:
- Too expensive
- Too complicated
- Locked up for too long
- Pushed by salespeople instead of recommended thoughtfully
- Or “bad investments” altogether
And in fairness — some of that reputation is earned.
Not all annuities are created equal. Some are overly complex. Some carry high fees. And some transfer far more risk to the retiree than most people realize. That’s why it’s completely reasonable to be skeptical.
But here’s the important distinction that often gets lost:
The problem isn’t annuities as a category — it’s how certain types are designed and used.
When annuities are misunderstood or misused, they can create frustration.
When they’re used intentionally, they can provide something many retirees value deeply: predictable income they can rely on.
This article isn’t about selling annuities or suggesting they’re right for everyone. Instead, it’s about clarifying:
- Why some annuities get a bad reputation
- Why others can serve a very real purpose
- And how annuities compare to income sources retirees already trust, like Social Security and pensions
With that context in mind, let’s step back and talk about the real challenge most retirees face.
The Real Retirement Question: Income, Not Just Savings
For many people, saving for retirement feels straightforward: contribute consistently, invest wisely, and build a nest egg over time.
But as retirement approaches, the question changes.
It’s no longer “How much have I saved?”
It becomes “How do I turn this into income I won’t outlive?”
This shift—from accumulation to income—is where uncertainty often shows up. Market swings feel more personal. Withdrawals feel riskier. And the fear of running out of money becomes very real.
That’s why retirement income planning is less about chasing returns and more about creating reliable, predictable cash flow.
And that’s where annuities — when used correctly — can enter the conversation.
Predictable Income Isn’t New — It’s Familiar
Before going further, it helps to recognize something important:
Most retirees already rely on guaranteed income.
- Social Security provides a predictable monthly benefit for life
- Pensions (for those who have them) create a steady paycheck in retirement
These income sources are valued not because they promise high returns, but because they:
- Arrive consistently
- Aren’t affected by market downturns
- Help cover essential expenses
- Reduce financial stress
Annuities are designed to serve a similar role — not as replacements for investing, but as tools that can help convert savings into dependable income.
What Is an Annuity?
An annuity is a contract with an insurance company designed to provide income—either immediately or at a future date.
You contribute money to the annuity, either as a lump sum or over time. In return, the insurance company agrees to pay income according to the contract terms.
The primary purpose of an annuity is income certainty, not market speculation.
Why Income Planning Matters More Than Growth in Retirement
During your working years, growth is the focus. In retirement, income and risk management take center stage.
Without predictable income:
- Market downturns can force withdrawals at the worst time
- Spending becomes harder to plan
- Emotional decisions become more likely
Reliable income allows retirees to:
- Cover essential expenses confidently
- Reduce pressure on investment accounts
- Stay invested appropriately instead of reacting emotionally
- Sleep better at night
Annuities can help provide that stability—when the right type is used in the right way.
The Three Main Types of Annuities — And Why They’re Not All Equal
Not all annuities are created equal, and they shouldn’t be treated as interchangeable.
1. Fixed Annuities
How they work:
Fixed annuities provide a guaranteed interest rate and predictable income payments. They are not tied to the stock market.
Why they’re valuable:
- Guaranteed growth
- Predictable income
- No market risk
- Straightforward structure
Who they’re often best for:
- Retirees focused on stability
- Those covering essential expenses
- Conservative or risk-aware investors
Fixed annuities function very much like a personal pension—and that’s exactly why many retirees value them.
2. Indexed Annuities
How they work:
Indexed annuities link growth potential to a market index while protecting against losses. When markets decline, your principal is protected. When markets rise, you may participate up to a limit.
Why they’re valuable:
- Opportunity for growth without downside risk
- Income riders can provide lifetime income
- Balance between protection and potential
Who they’re often best for:
- Retirees who want growth potential without full market exposure
- Those concerned about volatility
- Investors seeking income with flexibility
Indexed annuities are often misunderstood—but when used properly, they can provide a powerful blend of safety and opportunity.
3. Variable Annuities — The Elephant in the Room
This is where most of the confusion—and criticism—comes from.
Variable annuities invest directly in the market. Your account value rises and falls based on market performance. While income riders can be added, the underlying investment risk remains with you.
So why do variable annuities have a bad reputation?
High Fees and Misaligned Incentives
Variable annuities often carry:
- Investment management fees
- Insurance fees
- Rider fees
- Administrative costs
These fees can significantly reduce returns over time.
Because of those higher fees, variable annuities are often more attractive to money managers who are paid based on assets under management, not necessarily to the client assuming the risk.
The Risk Still Belongs to You
Despite the word “annuity,” variable annuities:
- Expose you to market losses
- Can reduce income potential after downturns
- Shift risk to the retiree
For most retirees seeking income stability, this defeats the purpose.
Are There Exceptions?
Yes—there are limited situations where a variable annuity may make sense. But those cases are the exception, not the rule.
For most clients, variable annuities:
- Add complexity
- Increase costs
- Provide less certainty
That’s why they are not a preferred solution in most retirement income plans focused on clarity and predictability.
Why Fixed and Indexed Annuities Often Make More Sense
Fixed and indexed annuities:
- Do not transfer market risk to the retiree
- Are designed for income planning
- Provide structure and predictability
- Complement Social Security and pensions naturally
They help answer the most important retirement question:
“How do I make sure my income lasts as long as I do?”
How Annuities Fit Into a Diversified Retirement Plan
Annuities are not meant to replace investing.
Instead, they work best when:
- Essential expenses are covered by guaranteed income
- Investment assets remain invested for growth
- Risk is balanced intentionally
- Income sources are diversified
A well-designed plan may include:
- Social Security
- Investment accounts
- Cash reserves
- Fixed or indexed annuities
This approach reduces stress and improves long-term decision-making.
The Bottom Line
Guaranteed income is not new. Retirees have relied on pensions and Social Security for decades because they work.
When used appropriately, fixed and indexed annuities can serve a similar purpose, turning savings into income you can depend on—without transferring unnecessary risk to you.
Not all annuities are created equal. Understanding the differences matters. And thoughtful planning makes all the difference.
The goal isn’t complexity.
It’s confidence.
Ready to see how an annuity may fit into your retirement strategy? Give me a call 317-828-9005